CPB / BookKeeping Financial Statement Preparation Questions and Answers

Question 1

A company prepares a classified balance sheet. Which of the following is the primary reason for categorizing assets and liabilities into 'current' and 'non-current' subgroups?

Accepted Answer

To help users assess the company's liquidity and solvency by showing its ability to meet short-term and long-term obligations.

Answer

To satisfy the requirements of the cash basis of accounting.

Answer

To determine the total amount of dividends paid to shareholders during the period.

Answer

To provide a more detailed view for internal management use only, as it is not required for external reporting.

Question 2

The Statement of Retained Earnings serves as a crucial link between which two primary financial statements?

Accepted Answer

The Income Statement and the Balance Sheet.

Answer

The Statement of Cash Flows and the Balance Sheet.

Answer

The Trial Balance and the Income Statement.

Answer

The Statement of Cash Flows and the Income Statement.

Question 3

A landscaping company performed services for a client in December and sent an invoice for $2,500. The client paid the invoice in January of the following year. Under the accrual basis of accounting, when should the company recognize this revenue?

Accepted Answer

In December, when the services were performed and the revenue was earned.

Answer

In January, when the cash was received from the client.

Answer

Half in December and half in January to spread the revenue over both periods.

Answer

The revenue should not be recognized until the financial statements are audited.

Question 4

Which of the following describes the primary purpose of the Statement of Cash Flows?

Accepted Answer

To summarize the cash inflows and outflows from operating, investing, and financing activities over a period.

Answer

To present a company's financial position at a single point in time.

Answer

To report the revenues, expenses, and resulting net income or loss for a period.

Answer

To detail the changes in the owners' equity throughout an accounting period.

Question 5

At the end of the accounting period, a bookkeeper performs closing entries. What is the main objective of this process?

Accepted Answer

To transfer the balances of temporary accounts (like revenues and expenses) to permanent accounts (like Retained Earnings).

Answer

To adjust the balances of asset accounts to their fair market value.

Answer

To prepare a post-closing trial balance to ensure debits equal credits before adjustments.

Answer

To record all transactions that occurred on the last day of the fiscal year.

Question 6

The calculation for ending Retained Earnings is: Beginning Retained Earnings + Net Income - Dividends. A company had a beginning retained earnings balance of $150,000. Its income statement for the year shows a net income of $45,000. During the year, the company declared and paid $10,000 in dividends. What is the ending Retained Earnings balance?

Accepted Answer

$185,000

Answer

$195,000

Answer

$105,000

Answer

$205,000